Lloyd’s may face conflict with members in emerging market embrace

Lloyd’s is losing market share in emerging markets including high-growth Asia and may face conflicts with members if it wants to regain business in the region, says Steve Jackson, partner at Rainmaker International, a Brokerslink specialty member.

London Market premiums from emerging markets declined to $9.3 billion in 2015 from $10.5 billion in 2013, according to the London Matters 2017 report. Asia remains the highest growth market globally, but was also the region in which London lost most ground over the period.

In Asia, Lloyd’s premium shrank 5.1 percent to $2.8 billion between 2013 and 2015.

London has seen absolute declines in all emerging markets, leading to clear reductions in already small market shares in Asia and Africa, and an erosion of London’s foothold in “Other Americas”, according to the report.

The decline was driven by increased competition from emerging market reinsurers, markets with lower cost of capital and expense, and jurisdictions that have actively supported the growth of alternative capital, the report noted.

And, “multinational insurers are not buying as much reinsurance as they used to,” Jackson said. Therefore, Lloyd’s should apply for direct insurance licence in emerging markets to boost growth.

“A lack of proximity, language barriers and missing direct insurance licenses are three fundamental things that squeeze Lloyd’s ability to capture an increasing market share in emerging markets,” Jackson says.

Experts participating in the London Matters report agreed that one reason why the London Market was losing market share in emerging economies was that brokers seek to place business locally in line with client wishes.

“Clients naturally have a preference to buy locally if they can and many IUA member companies have increased their profile across a range of different markets in order to cater for this demand,” says Scott Farley, director of communications of the International Underwriting Association (IUA).

But the combination of expanding in primary insurance and developing a local presence in emerging markets may prove difficult for Lloyd’s.

London offices of global carriers are avoiding competition with their growing local insurance networks, the London Matters report says.

“Acquiring direct insurance licenses is likely to be difficult for Lloyd’s, as this could mean that the market would compete with some of their existing client base and distribution, potentially causing conflicts,” Jackson says.

“It also has to be considered that a lot of the capacity that comes from Lloyd’s is received from big corporations like Liberty, QBE, AIG and ACE. They may not favour Lloyd’s going after direct licences to compete with their local franchises,” he adds.